Aeon Co., Ltd. ($8267)

My name is Yoshida from Aeon. Thank you very much for coming on busy schedules this afternoon. I would like to talk about the new medium-term management plan that runs for 5 years starting from this fiscal year. fiscal year '26 to fiscal year '30. This is the agenda for today. There are two parts: First, I would like to talk about the background to how we built the new medium-term management plan based on the business foundation we built in the last midterm plan. Also, I will talk about the directionality of the reform we aim at achieving. After that, I will talk about the business strategy that forms the new medium-term management plan as well as finance strategy, including cash allocation. So I hope to have 40 minutes of your time. First, the foundation of our new midterm plan is the previous midterm plan. So let me look back at what we have done there. From a quantitative perspective, the company came close to a targeted level of operating revenue. On the other hand, we underachieved in profit, including impact of COVID starting of inflation, the business environment changed in a way that was not expected at the time we created the midterm plan. There was an increase in labor cost by JPY 140 billion and utility costs rose by JPY 50 billion. In total, the cost increased by approximately JPY 190 billion. The result at the end of the final year of the midterm plan reflects those unexpected happenings. However, the 5 reforms that we set out in the previous midterm plan, which is shown on the right side of the slide, made our group profit structure stronger. What we especially focused on was enhancing three foundations and structure as business foundation for bringing evolution to the future product strategy. We are now switching to science-based merchandising. We are developing group-specific product analysis tools and rather than relying on intuition and precedent. We are switching to merchandising that enables comprehensive decision-making on assortment, pricing and sales promotion based on data. This helps us form and the merchandising platform that maximizes not only the gross margin rate, but also the total gross margin. In addition, we are developing group common product master file based on international standard GSI. We aim to visualize product and supply chain data within the group and create a common data platform that enables us to get information real time on transaction volume. It would allow consolidation of demand at the group level, rather than an individual company level. It would also allow rationalization of supply chain. Working on optimization of merchandise based on data analysis, as well as building a foundation for a more efficient supply chain allowed us to build the foundation that can bring growth in the next 5 years of the new medium-term plan. We enhanced our private brands as well which became the source of competitiveness under the inflationary environment. As you can see on the right-hand side of the slide, private brand sales, which was our KPI increase up to approximately JPY 1.7 trillion. Especially prominent was top volume, which posted double-digit growth getting to the size of JPY 1.2 trillion. Building an efficient supply chain, which is a one-stop shop from production to cells enabled us to have price competitiveness and the unique value of Aeon.ON both serve to win continuous support of customers. These enabled us to thrive. Next is digital. As you can see on the slide, we worked on developing our structure based on the 3 areas. We have seen certain level of achievement for each initiative. For example, in digitization of stores, we reduced the number of cashiers by introducing self-service checkout machine as well as usage of apps and other devices for payment purposes. In addition, we utilize AI for placing orders and discounts which would like to improve productivity on site. In health and wellness, we realized business merger with [ Tohoku ] Holdings 2 years earlier than we planned. As you can see on the slide, we now are the biggest domestic drugstore alliance. We are at a stage where we are already working on the integration process of 3 companies, including Aeon that would generate integration synergy. In the Aeon Living zone concept, we continue to work on reorganizing a local supermarket store business to become #1 in each region. As you can see on this slide, we identified core entity for each region. Restructured our scale so we can get economy of scale and completed building that structure. In addition, we made Aeon Mall and Endulge a wholly owned subsidiary paving way to build a group platform infrastructure that would enable us to optimize group assets and improve facility volume. Last but not least, is Asia shift. In the previous midterm period, we were able to grow our business to JPY 930 billion, including China and AFM. We focused on Vietnam, which is growing rapidly. The accelerated openings of retail and developer businesses such as SCs, GMS as well as supermarkets. In Vietnam, business grew by 2.5x compared to the previous 5-year plan in area overall, exceeding sales of JPY 100 billion. In addition to these foundations, we rolled out in multi formats, including founding a financial subsidiary, launch and entertainment and service business to capture future growth opportunities. The past 5 years were a period in which we were able to enhance our foundation for future growth. Based on the business foundation that we built through 5 reform initiatives in the previous midterm plan that I have talked about so far, we will work to convert opportunities brought by future market environmental shift, so to the growth of group overall and expand profitability. I would like to talk about how we recognize the business environment. The future changes may seem very difficult, but Aeon would like to recognize this on opportunity Food Retail business contributes by 60% in sales, continued inflation and labor shortage put pressure on gross margin. On the other hand, cost continues to increase, suppressing the margin. This issue is a structural issue common to industry overall. Improvements that can be made with individual efforts of stores and companies are limited. On the other hand, for companies with sale, we can capitalize on structural superiority. I believe that we are now at a stage where the scale and business foundation that our group has been building can be converted into a competitive event. In addition, if we look at the growth areas of the market, Demand for health and wellness business are increasing regardless of age. On the other hand, regional gaps and service provisions are becoming a social issue. Let's turn to growth opportunity overseas. Domestic markets growth is limited in large cities. On the other hand, in Assam, high-growth rate continues in many countries. This trend, I believe, would continue and further expand. Our company already has a certain level of presence in the growth market of the future in the form of drugstore alliance, business foundation in metropolitan areas as well as business rollout in Assam. We are in a position to accelerate growth, and we believe this is our biggest opportunity. We believe the importance of our customer base of data will further increase. E-commerce and OMO are becoming the norm, and AI adoption is accelerating. In a world like this, competitiveness would be determined by how big and frequent your customer touch point is as well as how much you are able to continuously accumulate and utilize daily life data such as purchases, payments and health care-related information of the customers. Our group's customer base and data are critical assets that would generate growth opportunities for the future. In addition to improvement of existing businesses, we have a variety of potentials, including creation of new products and services. Developing group portfolio with multiple growth drivers, scale and structure that would enable integrated functioning of customer base and data is critical. That would generate huge competitive edge in the coming business environment. Based on that recognition in the new medium-term plan, we will work to maximize the utilization of business foundation we have been developing and reliably converted to revenue and profit. This is the overview of the medium-term management plan in one sheet. The basic policy is to allocate resources concentrated in the growth area and materialize structural reform of the business. Through this, we will aim to improve profitability and capital efficiency. I would like to make a supplementary comment about building high-margin portfolio that you see in a of this slide. We have health and wellness developer, entertainment and Vietnam businesses that are growth drivers. We will materialize multi-format growth that does not depend on one area. By expanding and increasing the weight of nonfood as well as services where margin is high, we will be able to turn the group profit structure into a high-margin model. To do this, we will allocate the resources heavily in the growth area and work to reactivate the existing businesses at the same time. We have categorized our business in this 3 groups: Build businesses with leading market share, health and wellness, TV and entertainment. Here consists of Aeon domestic operations on [indiscernible] Aeon Retail Development Business and Entertainment Service business. In addition, food retail, which includes the food sector of supermarket discounter and GMS. Under the next-generation growth business, we have ASEAN, which encompasses all businesses operating in the ASEAN region, such as retail and shopping center development. and the revitalization of existing businesses, we have GMS, which primarily refers to nonfood categories such as apparel and home fit and China retail and domestic financial service. We recognize these three businesses as those that should achieve renewed growth by identifying their core areas and pursue a strategy of concentration and selection. Food retail is a business segment within the group with the largest sales volume and the greatest concentration of management resources such as stores and personnel. We view improving its profitability as a highly effective initiative for boosting the group's overall profit levels. This is outlined separately in Section B. Third, as indicated in is the completion of business structure reform. We will restructure the business and capital structures, which have become distorted as a result of past business expansion into a form that aligns with our strategy. by eliminating factors that tinge earnings structures such as unprofitable businesses and redundant entities, we will enhance the quality of the entire portfolio. Finally, indicated as deep we will transform our financial structure. In an environment of rising interest rates, we will shift towards a management approach that places particular emphasis on cash flow and capital efficiency. By implementing these 4 strategic pillars, we plan to achieve our quantitative targets for fiscal 2030 and lay the groundwork for sustainable growth beyond that. These are quantitative targets for fiscal 2030. What does this mean? We anticipate that operating revenue JPY 15 trillion will give us the top market share in the domestic retail industry. In addition to expanding our scale, this medium-term management plan places particular emphasis on profitability and capital efficiency. Our targets are operating profit of JPY 530 billion, operating profit margin of 3.5% and ROE of 8.5% or higher. There would be a milestone to sustain our growth. Furthermore, by increasing EBITDA to over JPY 1 trillion. We will establish a financial foundation capable of consistently generating sufficient free cash flow. This will enable us to continue to make necessary growth investments within the scope of operating cash flow. We will balance business growth with financial soundness, thereby laying the groundwork for long-term sustained growth. The graph on this slide breaks down the EBITDA mentioned earlier by major business segments. In this MTP, we have defined this 5-year period as a time to transition through a structure capable of generating sustainable cash flow by leveraging the advantages of our multi-format business model and combining multiple distinct sources of cash generation. In high value-added areas, we will promote integration with services directly linked to daily life, primarily agent. So DB and Entertainment to build up EBITDA at a relatively high profit level. Meanwhile, in the food retail sector, in addition to accelerating growth in my basket, a key growth area, we will restructure operations to convert group scale into profit through reforms and business infrastructure such as logistics and PC, thereby strengthening the foundation for sustained cash generation. In Asia, we will capture high-growth market centering on Vietnam while pursuing growth with a focus on investment efficiency through multiformat expansion, including the financial and service sectors. We believe that having these 3 business segments complement one another, we will enhance our resilience to environmental changes and realize a repeatable cash generation structure. Here is our approach to investment allocation. Anticipating a future environment of rising interest rates, we are prioritizing management within the cash flow level and established priorities for investment allocation. Given the expectation that construction costs will continue to rise, we will prioritize investment enhance the value of existing assets in our DB business as well as investments in growth businesses such as drugstores and Vietnam. In the food retail, we will shift and prioritize investment towards building the infrastructure necessary for profit structure reform. In terms of our investment approach, we will manage ROI for each investment type for growth investments. We will prioritize profitability at the business level. For infrastructure investment, we will secure returns by improving profitability across all formats within the food retail sector. We will also secure around JPY 500 billion as strategic capital. For example, we are considering M&A opportunities aimed at acquiring capabilities upstream in the supply chain, such as companies, disusing manufacturing and processing technologies and know-how related to food retail. And from here, I will explain the details of our key strategies in order. First, as shown on the slide, b, is the food retail business, which is a starting point for group growth and structural transformation. Regarding food retail, rather than improving product, store operations and formats individually we will proceed interconnecting them each other. There are four main implementation measures. First, as a quick win, shown as B1. We will revamp the gross profit structure centered on PB private label and the national brand products. Regarding revamp of the cost structure outlined in B2, we aim to improve productivity by leveraging infrastructure such as logistics and process centers that are highly automated through AI and robotics, which offer structurally different productivity lens compared to the conventional systems. These measures are expected to begin having a significant impact on profit study in the middle of the midterm plan. Based on these measures, as outlined in B3, we are designing a strategy that combines the development and shift to the new supermarket model, creating both quick wins and midterm profit generation. Before, we have identified Redtail area as a priority region. As for the infrastructure development supporting the implementation of these measures, as you can see, we have already begun building the foundation such as a product master development since the previous midterm plan. Regarding execution framework, we have shifted the focus of optimization from individual companies to regional units and then to group level. In addition, by establishing specialized organizations, responsible advanced data analysis I will now explain the key points of each of these execution measures. First, we are revamping our products and gross profit structure. We will further scale up the expansion of PB products and consolidation of national brand demand. We will not limit the benefit of these efforts to cost reduction alone. Instead, we will transform our structure to a [indiscernible] price competitiveness and securing total gross profit. First, for PB, we will expand top value sales to approximately JPY 2 trillion and gradually increased its share of total sales from 15% to 30% in aiming to make BB the top market share brand in Japan by 2030. We expect cost reduction benefits to materialize relatively early on as we work to increase sales of individual items, particularly key SKUs and expand our product lineup in untapped growth areas. For NV products, we will increase the proportion of group-wide joint procurement to 45%. We will drive efficiency across the entire supply chain, including stabilizing manufacturers production plans and streamlining logistics to expand opportunities for cost reduction. We expect these effects to show up gradually with cost savings contributing more significantly over the medium term. Our plan is to generate approximately JPY 130 billion to JPY 140 billion in gross profit and cost reductions in FY '30 single year compared to FY '25. The key point is to strategically invest a substantial portion of the funds generated into pricing. How can we use these price investments or price investments effectively to generate high returns. We will strengthen our common data infrastructure and systems for analyzing and utilizing that data. Next is the revamp of our cost structure. During the previous midterm plan, we had store the centered on cash registers on an individual company and store basis. Going forward, however, we will transition to a phase where we enhance productivity structurally by designing initiatives, including the allocation of infrastructure investment under group leadership. In the first part, we will focus on changing the structure to one that can generate positive outcome quickly. More specifically, we will enhance existing facilities, consolidate raw materials and utilizing outsourcing to build the foundation for utilizing process centers. Another is consolidating processing sites for products like Delhi to large stores and have them supply to the nearby smaller stores like a mini processing center. This would enable a more efficiency in production process and improve assortment and freshness in smaller stores. We have already introduced this in some areas like Kyushu, and we are seeing fruitful results, and we would like to strategically expand it to other areas. Based on these initiatives, we will promote the start of operation of new facilities from the middle phase and turn the group's scale to better productivity and profitability and transition to harvesting fees from that point. For the coming 5 years, we have secured an investment of around JPY 300 billion to JPY 400 billion for logistics and process center-related infrastructures. We will take a phased out approach and expect some positive effects from the first space. In the latter phase, we will harvest the profit. And we would like to do the DX in JPY 70 billion to JPY 80 billion. And we would like to spend JPY 10 billion for the store X. Next is conversion to a new supermarket model. We will change our gross margin and expense structure to materialize better price competitiveness. Based on that, we will build a new supermarket model that minimizes in-store processing and capital expenditures. Value proposition from this initiative is a combination of price competitiveness and fresh and high-quality perishables and delicatessen agricultural and fishery products tend to be region specific. We want to make these products a destination for our customers. The targeted sales flow ratio for these products is 35% or more, and we will make these products reason for customers to come to shop in our stores. The concept revenue model for the new super market is, as you see on the slide. We will convert the existing stores to the new model in a phased out approach. We plan to invest approximately JPY 300 billion in the coming 5 years for reactivation of existing stores. In food retail, we will focus especially in metropolitan areas. In fiscal year 2030, we will aim to have in the metropolitan area and operating revenue of JPY 2.4 trillion, which is 1.6x more than we make now and targeted shares approximately 15%. Going forward, more people will be living in a metropolitan area, and we will work to create touch points with our next generation of main customers, which are young generation. At the core of the strategy is USMH, which already makes operating revenue of more than JPY 1 trillion in the metropolitan area. Discount stores tends to be stronger in the competition, and they are growing. However, in the face of that, USMH will, through its supply chain and reform centering on PC and distribution, improve the profitability level of existing supermarkets. On top of that, my basket already has stable revenue model. All stores are directly operated because of this accelerated store opening is possible. And we would like to we would like to enhance products related to ride and locate. We will aim to make JPY 800,000 cells per day for each store and improve margins. And we would like to multiply that with 2,500 stores. On the other hand, green beans will focus on building a profitable structure in the coming 5 years. It will serve as the foundation for our online business, and it will be developed as growth engine in the mid- to long term. We aim to establish green beans a first online food retailer in the metropolitan area. In fiscal year 30, we target having 4 million members, which is 4x more than now. Our group has multiple formats that can be coordinated on a common platform. This is a competitive edge for our company. From here, I would like to talk about something different, which is shifting to a high profitability portfolio, which is Item A in our main strategy. This is an area where the weight of the profit is high. At the core is food retail, I talked about earlier as well as health and wellness, developer and entertainment businesses. Based on the overwhelming scale that we have, our customer base as well as property assets, we will aim to grow profitability in the high value-added service area. I will talk about our main initiatives one by one. This slide gives you an overview of initiatives on the health and wellness business. This is the biggest driver of the profit in the new medium-term management plan. Because [indiscernible] medium-term management plan has already been made public, I would like to touch upon only the highlights today. The new [ Tuteja ] Holdings has nationwide network of 5,600-plus one-stop shop stores where customers combine medication and daily necessities. Customer touch points are more than twice the amount competitors have. In these stores, there are 50,000 health professionals, including pharmacists and registered sales clerks. They can provide comprehensive support to customers about childbirth and childbearing as well as about elderly and long-term nursing care. This would enable the widening of customer touch points increasing the frequency of visits to the stores and their continuous use for the stickiness to the store. We will work area by area to bring customers who are using multiple formats of Aeon into the health service. This is an initiative to share customers within Aeon Group. In addition, we would like to expand the business from just selling products to peripheral categories such as food, prevention of illness, wellness and lifestyle support. We will work to increase the ratio of value-added services. By implementing this, we will improve the profitability of health and wellness overall. Next is Drug and Food store format. In order to provide daily life infrastructure services in rural areas, it is indispensable to enhance the assortment of food products. Since last year, we have started working on converting [indiscernible] stores to drug and food retail format. This fiscal year, we will accelerate that process. This format will have a 250 to 300 silos in size and the ratio of food products within the store is approximately 40%. This is a model to drive customers into the store through provision of daily necessities. In the 10 pilot stores last fiscal year, we saw an increase in customer count as well as sales and margin level was improved. We now have a clear path to investment recovery. we have been able to different ourselves in the locates and dairy category. We are able to differentiate from other players in terms of assortment, pricing and quality. Even though food was increased to 40% of the products in the store by utilizing operational know-how of Aeon's food retail stores, we have been able to reduce the stores burden, enabling the balancing of revenue and profit. Next is developer and entertainment business. The current situation is, as you see on the slide. The number of visitors as well as profitability growth is going beyond the pre-COVID levels against the backdrop of changes in the environment. People are wanting to go to locations where they can gather casually and enjoy themselves. The values we provide are being monetized. Taking a closer look at the recent consumption behavior of consumers. They are looking for a cool place to gather where they share comfortable space with each other against backdrop extreme heat in the summer and high electricity costs. Also, the family with kids want their children to play in a safe environment. Also because of inflation and variety of products and increasing gas prices, people are spending less time traveling for and spending more time near their homes because of those facilities that meet this demand would have higher volume. Based on changes in the environment, our shopping centers are not just commercial facilities anymore. It is a platform to provide consumers locations together and experience what they want to experience. The assets are becoming more valuable. As you can see on the slide, we see robustness in the specialty store sales centering around cinemas, amusement and services. we are seeing direct impact of conversion of existing stores to a place of experience and gathering in the form of increase in its profitability through activation of the facilities, the profit level went up approximately 10%. The structure of developer and entertainment business apparently is changing. We will capitalize on this in the coming 5 years by growing the business and generating profit. Expenditure for leisure made for experience something and generating time volumes increasing. Even under declining populations. Cinema amusements, live entertainment, music and video streaming services and IP, which are included in the domestic entertainment market are expected to have large room for growth. In addition, social challenges such as the normalization of extreme trials in prices, regional disparities and disparities and children's experiences are structurally persistent. We anticipate that demand for safe, comfortable gathering places where people can come together and engage in activities will continue to grow over the medium term. As another key focus, we will incorporate functions that address the calendars faced by local residents and government, such as daily living support hub for learning and communities and public services. To establish our shopping center as central hubs for community life. As rising construction costs raised the barriers to new development. Our company owns some of Japan's largest commercial assets which were built at low cost in the past. We view these properties whose relative value has increased due to inflation as the foundation for our growth. By embedding the profitability improvements currently being realized into our portfolio assets which comprises approximately 6.8 million square meters of total leased area. We aim to achieve those dynamic profit generation and enhanced value as a local leading infrastructure. We will consolidate these functions into Aeon Mall, which has been listed by achieving 100% ownership, we will be able to flexibly reallocate store assets within the group. Thereby maximizing asset value. We believe that enhancing customer traffic and improving asset values will also lead to higher rents. We are establishing a framework to drive growth and generate revenue from our existing assets. Next, two covers the building of next-generation growth businesses, anticipating future contraction in the domestic market, we believe that it is essential to increase our revenue share of the overseas special Vietnam, and I will show you the video regarding Vietnam. This shows the Aeon one center, which opened last year. As you can see, the sales floors are bustling with people and the accent is very lively. Vietnam is the most critical market accounting for approximately half of profit growth within ASEAN. We will accelerate growth by allocating approximately 60% of our total investment to Vietnam in the coming 5 years. We will systematically accelerate store opening from the early stages of the transition to modern retail to quickly establish a solid business foundation and market share. In addition to our existing expansion strategy center malls. We will promote the dominant expansion of supermarkets in the two major metropolitan area, [indiscernible] as well as in regional core cities to expand their physical store network. As a result, we plan to pull our operating revenue over the next 5 years. Furthermore, building on the customer base cultivated through our retail and development -- developer businesses we will gradually expand into a multi-format business model that includes service sectors such as finance and entertainment. Specifically, Aeon Entertainment, Vietnam, will partner with local company beta media to optimize locations, operations and the customer experience for the Vietnamese market, delivering high-quality Japanese style services. In addition to Sete operations, we will strengthen the distribution of Japanese films and Anima to diversify penetrant. Moreover, [indiscernible] consumer finance market is projected to grow to approximately JPY 30 trillion by 2030. Starting with PTF, which we made a subsidiary last year, we will expand our credit-based code payment business. By combining the convenience of copayments with features such as plate options, we aim to capture the growing middle class as their incomes rise. By driving revenue growth in high value-added areas, we will achieve operating profit growth exceeding 3x of the sales. In the medium to long term, we aim to establish ourselves as a top tier retailer in Vietnam. Next is Slide 3. Revitalization of existing business. Since we have already announced our midterm plan for the financial sector today, I will focus on GMS business. Under the previous MTP, we enhanced our cash generation capabilities by improving our productivity through store DX and operational reforms, reducing inventory turnover days and expanding our food and HPC segments. The right side of the slide illustrates our approaches to GMS reform building on these achievements. Regarding the first point, enhancing one-stop value, we anticipate a steady increase in demand for customers to minimize the number of store visits and complete all their daily necessities in the single trip. Given the ongoing kind of decline in growth rate and aging population, analyzing single-person households. Regarding the challenges in the apparel and home furnishing, we will address the mismatch with customer needs and work to redirect customers from the food sector to these areas. And we would like to expand the revenue from cross-selling. Another key point is transforming our stores into destinations that generate reason for customers to visit. As mentioned earlier, at the developer business, the experience entertainment and wellness sector has the potential to drive store visits. Encourage longer stays and promote to repeat this business. By integrating these growth areas into our GMS assets, we will convert them into new opportunities for customer acquisition and revenue generation to achieve this new midterm management plan will shift the focus to restructuring DMS assets with a core emphasis of apparel home furnishing. First, we will create areas for experience such as those for children food that combined company operated stores or specialty stores to enhance the motivation for store visits by making Aeon's wholly owned subsidiary, we will enable flexible zone planning and great areas that serve as hubs for attracting customers. Second, we will accelerate our SBA initiatives focusing on the basic product categories such as underway on general merchandise. By supplying products to supermarkets and small format stores, we will consolidate procurement lots across the entire group to improve cost efficiency and strengthen our price competitiveness. This will lead to expanded the sales and profits of JPY 15 billion or so. Third, we will reorganize our apparel sales floor by rolling out specialized zones that have proven popular with customers such as double focus, which was developed as a dedicated space for younger consumers. Sales growth has already been confirmed at pilot stores, and we plan to increase the likeliness of our success by refining the model as we expanded. Furthermore, for categories with no prospect of improved profitability, we will assess their viability during the MTP and to undertake redesign that includes the reallocation of assets to growth areas and collaboration with other companies. Raising the GMS segment's profit level is a key challenge for the group, and we will take steps to more than double them over the next 5 years. Now is the key strategy business structure reform. Under this [indiscernible], we will transition the initiatives shown on the side to a full-scale results generation phase by eliminating unprofitable companies and consolidating businesses and functions. We aim to improve net income and capital efficiency. While onetime costs will be incurred due to the restructuring of the target companies, we anticipate an improvement in profit of approximately JPY 30 billion. We also expect an improvement in ROE through measures such as result and negative equity. We aim to complete this initiative within the first 2 years of this we will proceed with portfolio restructuring to enhance the group's profitability, capital efficiency and capacity for growth investment. Well before the term sustainability began widely used, E.ON took a pioneering approach to initiatives such as 3 plant campaigns, encouraging customers to bring their own shopping backs and in-store recycling, working hand-in-hand with the customers and local communities to drive these efforts through daily shopping and participatory activities centered around the stores, we have expanded these initiatives to society as a whole. In fact, we believe that our achievements such as achieving the interim targets set in decarbonization vision announced in 2018, we achieved them 7 years ahead of schedule in 2023. They were made possible only through the support and participation of our customers. Furthermore, we recognize that our ability to leverage our nationwide store network and diverse business assets to implement these initiatives on a large scale and on an ongoing basis is a unique strength of OM, by combining anticipate our initiatives that leverages our direct connection with consumers was the scale of our group. We aim to create social impact in ways that only our company can achieve. We will, over a long time, contribute to our corporate social value. Lastly, I would like to share our fundamental management philosophy. In today's world, there is a growing trend towards valuing Western Star shareholder-oriented management that prioritize short-term profits. While this approach is not necessarily wrong in itself, Aeon's management philosophy, aims to balance solving social issues with corporate growth and to become an indispensable presence in our communities. We believe this will lead to sustainable management in the long run. By leveraging the group's diverse businesses and scale, we aim to build a society where consumers can live with peace of mind, free from concerns about rising prices and barriers and qualities. Through this value creation, we expect to gain greater support from our customers as a result to enhance the group's profitability. We will then reinvest and circulate these profits into new growth areas, driving sustainable corporate growth. Furthermore, this will expand the range of social issues we can address. This is a fundamental philosophy underlying TP. In today's dramatically and repeating go, we believe that multi approach allows us to leverage our strengths through mutual complementarity through this we aim to simultaneously achieve business structural reform for sustainable growth and management based on values rooted in our philosophy, thereby enhancing the group's social and corporate value over the long term. Thank you for your attention. This concludes my presentation.

We would like to proceed to Q&A session.

In the previous midterm plan, you talked about private brand. And also, you talked about the group synergy and you concentrated on talking on those things. In the new medium-term plan for the coming 5 years, where is the area where you're most passionate about? Where is the area of where you need to work on? I felt that it's different from the previous midterm plans because you would be conducting the structural reform, but you would be focusing on the growth area as well and you will be taking on new challenges in the growth areas. So I feel that each initiatives that you have to work on has high hurdle that you need to overcome but towards working on achieving the midterm plan. Where is the area where you would like to concentrate most on?

As I have said at the beginning, in the previous midterm plan, we were able to form certain level of foundation, we would like to capitalize on that. And we will work on the private brand as well. We will accelerate the initiatives. And we want to become the private brand, which is overwhelmingly supported by the consumers. I emphasized multi-format in this presentation today. We need to take a balance of that. The environmental changes in the market is very rapid. So single format is difficult to do. So we want to have a multi-format which is well balanced and that would bring us forward. I didn't talk much about developer business in the last midterm plan. However, due to inflation, the volume of the property is drastically changing. So our facilities are becoming older and about the location is good. So if we can capitalize on that, maybe it would be conducive to making more profitability. As for health and wellness, we have scale. So we want to enhance that. And another is a fan. In terms of Vietnam, the growth is very definite. That's what we feel. So even when we go to rural cities, we are able to get to more than expected figures. So the purchasing power Vietnam's people are increasing. There is an increase in the middle income population. So we would like to grow significantly in Vietnam in the coming 5 years. So we -- so we want to keep our focus in those areas that I have talked about.

You did not refer to the financial services business this time. If you say Aeon finance and developer was your good business. I think the developer is doing good business, but the financial services seems to be a bit stagnant. In this new MTP, I evaluate finance service area from a stock price vision as well as how are you going to support and push accelerate this business?

Financial. Overseas is quite favorable. Domestic Financial Service business is a bit stagnant. So this time, in midterm plan, we have separated out the domestic part, financial services. We have a customer base at the holdings and how are we going to leverage that in the financial sector. financial service business itself is a listed company, so it is doing independently, so to speak. But to this, how are we going to share the customer base that we have at the holdings and other places with this company, the financial service companies, this is important. We have retail a place. That should also be fully leveraged and used. And also the younger generation, the customer contact point and how are we going to provide financing to those younger generation. Of course, we need some technique, but I think there are several ways for us to accelerate the financial service domestically.

So in new MTP, you see that this is able to grow further?

Yes. Overseas Malaysia and so forth, thanks for the efforts. We are having a good job there, but domestic is a big segment. So we will be doing something for this domestic business.

I would like to ask about the improvement of profitability of the food retail as well as the pricing strategy. Gross margin generation, cost reduction are what you would be working on. And you would be investing the amount that has been freed up through cost reduction would be invested into the pricing strategy initiatives. But what I'm concerned about is that there may be more price competition. So in terms of the pricing strategy compared to the past you will be focusing more on the improvement in the margin? Is my understanding correct? Or based on the competitive environment, what kind of positioning would you be aiming at in terms of pricing? And also, I would like to ask your take about my concern about the price competition?

So as you have rightly mentioned, we will be aiming at pricing our products properly. And currently, the market is in a very difficult situation. consumers are concentrating into discount stores. enhancing of the private brand means that we will be securing appropriate margin through cost reduction, know-how that we would acquire. So for example, now we will be thinking about how we would be able to create packaging which uses less plastic. So in the past, we had put a plastic sheet within the package to make it more beautiful, but we would take that out or we would reduce the number of colors from 4 to 3. For example, we will work to reduce the cost so that we can secure the margin and continue to have appropriate pricing so that consumers would be able to buy them. So in terms of your thinking, in terms of the margin, you would be thinking relatively to what the competitors are doing. But rather than drastically decreasing your price, you will be capitalizing on the supply chain as well as economy of scale so that you would be able to relatively improve your competitiveness. So it's not bringing down the price drastically. So drastically decreasing the price. Well, well, in terms of private brand, we would be able to control the supply chain. There are about 7 steps. And we would look into which steps that we would be able to change to reduce the cost. So for example, this water, it's JPY 58, 52, top volume natural water. So it's in square form. So there is no gap between the other bottles, and we would be able to improve the distribution of the transport efficiency. So because there is a large number of water that we transport. So by increasing the number of bottles that we would be able to fit in the truck, we would be able to reduce the cost. So through this, we would like to suppress the at a price in the store because consumers are taking a severe look at our product prices.

Earlier, you talked about the strategy for Greater Tokyo. Grain beans growth, you have referred to that. When you look at the current status, we have oil price increase and sort of truck drivers, the logistics cost is inflating or seems to inflate. And under such circumstances, how are you going to absorb and increase and accelerate green beans, how are you going to sort this out? Wouldn't that be a limitation?

Yes, this is going to be additional cost, as you said, green beans, we are not selling in the regional segment only in the populated areas like Tokyo, Greater Area. So because the logistics and the transportation, if you make it more than several units of trade, it will cost to several and pay you. So if we have populated area, then you're using AI, we and design what would be the most optimal transportation or delivery costs. So we're trying to have more members so that one truck can deliver more people and in a smaller area. So that is how we're trying to absorb the cost in [ Huawei ].

I would like to ask about Item B2 you would be making improvement to PC and PC ratio of 70% is what you are aiming at. For materializing this, how would you be advancing the existing facilities? And also, how would you be reallocating the PCs? And what is micro PC, the mini PC that you talked about? Could you talk more specifically about the pathway of getting to 70% PC ratio?

The new PC in order to be built, it would take about 2 years. And currently, PCs are being allocated according to the optimization of each company. So there are 4 companies into U.S. So we are now rearranging the PCs within the group and to improve the production efficiency. So we will be rearranging the existing PCs. And in terms of the micro PC, it is about consolidating the processing in larger scale stores to distribute it to smaller scale stores. We are doing a pilot in Qs, and we are seeing fruitful results. And while we are improving the efficiency of the existing PCs, we will build new PCs during that time and make the overall structure stronger.

Earlier, you mentioned that M&A, the growth, there is a -- so far, you have been doing it and growing in new MTP. What is the width and target of the M&A or new ideas, if any?

It is not the specific names. But so far, we have been doing the area claim wise. That means that we were rolling out horizontally. But as you say, vertical integration in the upper side upstream then upper stream of the supply chain. We have to do M&As. For example, getting together with processing companies and work together. And that will create higher speed in case of digitalization, I think clearly, we are behind the others. So if there is a digital companies and the product, if it's combined, then the business will go up, then I think we can think about that pairing. So we have been wider. We have more wider option or targets now.

So you've been horizontally targeting. But that means that not any more targets in the horizontal arena?

No. For drug stores, yes, so we have limited number of companies. But the supermarket, we have more smaller regional-based supermarkets. So they would probably should have to consolidate or else they cannot invest in private brands and digitalization. So I think in that sense, we will be seeing activities there, and I'm monitoring that as well.

I would like to ask about health and wellness. [indiscernible] has been integrated and domestically, you now have big share in terms of revenue. Going forward, how will you be working on overseas, for example, in Vietnam, how would Sudha be entering into the overseas market. From what time point there is an acceleration in the acceleration in the opening of the stores?

Sudha already have stores in Vietnam already. So we have strategies about the overseas and so we have experience of being in Vietnam for 11 years. And we are providing information about which location will be best [indiscernible] to go into and also sharing of the supply chain. We are working to share where we can in terms of the infrastructure. So if you start from scratch, it would be very difficult, but we already have a foundation in Vietnam, so they are capitalizing on that.

Into your management plan, what was the page number of the slide, 31, you're going to consolidate the unprofitable companies. Can you elaborate on this point earlier in the Jet conference, it seems to be that going to be doing more but there is a stock price like Pact. So what is the concrete coverage the so to speak, overlapping area and where you intend to actually sell? And in the past, I think you had the consolidations and you had listed companies. How are you going to do the consolidation and partnership with your companies of subsidiaries? Because of the changing environment. Can you elaborate on that a bit?

Well, this business restructuring, I have mentioned earlier that as Aeon 3 consecutive periods, we had debts and also we have seen some unprofitable companies for 3 consecutive periods, and we will focus on that. So GFO is a company, one of them. that goes under that criteria. So which field, as mentioned, food developer, health and entertainment. In those areas, strategically contributing area, we want to make investment and we want to reinvest and rebid and grow and not that kind of companies like Aliant's life insurance. It was not necessarily related to our core business. So that will be released. So I think as an EO, whether we would like to grow that business or not. That is the criteria that we have selected the target companies.

In terms of food, retail. You talked about improving the profitability, and I would like to deep dive into that. In your presentation, you talked about JPY 300 billion to JPY 400 billion for the investment in the food retail for improving the profitability. [ Tsukada-san ] has talked a lot about this in the past 3 things.

So improving the improving labor productivity is what you have been working on. And in the previous year, KVI value item. It was expanded too much. And what happened was the gross margin had dropped. You are working on digital transformation as well as AI. But even in companies like you, you have not been able to respond appropriately to the market situation change. So what I want to say is you -- I think going forward, it would be it would take about 2 to 3 years to be profitable after starting to invest.

So during that time, if the discounters or other competitors if they had started a competition war. There may be a possibility that the margin will drop. And you may not be able to improve your operating margin. Maybe that may occur in 1 to 2 years out of the 5 years of midterm plan. I don't think that the profitability would be going up very drastically in a short amount of time. Could you rebunk me?

So I think you're talking about the time lag of becoming more profitable? In terms of Delegates, the existing processing centers. So we will rearrange it and make it more efficient. So we would like to improve the profitability of delicatessen through that initiative. We would like to work on that right away. Also, we would work to increase the ratio of top volume and improve the gross margin. and also the consolidation of the demand so that we can place a larger volume orders to the manufacturers. In terms of private brand, we have mega item concept currently, 1 billion items can be sold in 100,000, and we would like to increase that number to 1,000. And this would be conducive to improving the gross margin. So from the second half of this year, we are hoping to see some fruitful results from the initiatives that we are doing. And in the morning tea had made an announcement to install the pricing change. And so the private brand has price elasticity that would enable us to have a bigger margin. And we will make use of that. So another is increasing the stickiness of the private brand, increase the fans amongst the consumers for top volume. I think that will be a critical point for us. I don't know whether I was able to answer your question.

At least for this fiscal year or next fiscal year in your plan, I believe that you would be booking extraordinary losses. And I hear that it's JPY 30 billion for this fiscal year. So considering your earning power, EPS would not be going up. And if this continues a year or 2 and if you try to increase the ROI you need to have increase in 4 to 50 years. Is my understanding correct? So maybe it would be best for Shikata-san to answer.

So in terms of your question. So we are hoping to complete our initiatives in 2 years. And the and the losses for taking that initiative is in between JPY 10 billion to JPY 15 billion and first 2 years. And in the -- the middle phase of the midterm plan, we would like to derive through full results.

In the past few years, I think the consumers' mindset is now harsh. During the NTE, you may be difficult for you to assume the consumer mindset because of the Middle East situation, maybe now that our consumer mindset is at one time down or do you think it will be longer because we can assume some inflation is. So what do you see the midterm consumer mindset?

Well, currently. Well, when we compare that with last year, I think last year, rice inflation was very much also vegetable prices were also higher. So year-on-year, I think we have some differences clearly coming out in the March May. And when you -- yes. Compared with last year, June comes to a favorable trend. But I think the consumer mindset is not bad. I think it's selective they will buy what they need to buy. And I think those products are selling well. Quality and price balance is required for the product to be sold. And also, the angle cooperation is 29% at this point of time in that sense, then food I think people do not want to spend more in the wallet. If it goes higher, then there is no more money spent for leader and hobby. So I think, therefore, from that, we're not reducing our margin but not increasing price, I think that's what I think benefits the customers and the customer will select us. Or else, if we don't do that, I think the customer decline is a big impact to our business. So I think that's what we should be doing. And one is perishables. Grocery. You can buy it online. So that means that shorter selling period products have higher value. And I think we need a presence there. So the consumers will not say that they don't want to buy anything. They are very selective. That's my sense, what I feel.

And one more thing to confirm. You mentioned about the packages and logistics. I think so far, you were following decarbonization and plastics. But I think -- do you think that, that is now a point of competition has gone into a point of competition.

Yes. And yes, so far, we have been focusing on decarbonization. For example, Aeon, while we do PPA, the solar panels are being established, and we are using that electricity in that mall. And I think that's environmentally friendly I think, situation. And if the electricity price is higher, then that will become a good for us. So we do not want to use more plastics and deliver that to a product. That means that environmentally free plus because I think it's beneficial in the current situation where oil prices are rising. So I think we want to further pursue that. For example, this is using a recyclable PET, PET bottle. And in this Middle East conflict, this is beneficial for us. I think positive for this. So far, we have not intended to do so, but now this is beneficial for us in another sense.

I would like to ask about the balance sheet cash allocation. You talked about operating cash flow, but company your size in promoting the structural reform, well, Shikata-san talked about extraordinary losses. But I'm sure that there would be added cash in. And also if you don't have any good M&A opportunities, you may be repaying the debt. So the balance sheet 5 years from now. Well, you have you would be able to leverage ROE because your equity ratio is low. So also by selling the assets how would cash allocation would look like? And what would be the best way for Aeon in terms of the balance sheet from 5 years from now? If you could talk about what the best balance sheet would look like for E.ON aside from financial services. And I was wondering if the ideal can be reached within 5 years' time? Or it would take longer.

This is Egawa, and I would like to respond to your question. As you pointed out, within a consolidated subsidiaries, we have Aeon Financial Services. And because of that, we -- our balance sheet tends to be bigger at JPY 15 trillion and the 50% is that is AFS and the equity ratio is 7% to 8%. And what is the past for us? That was your question. The slides that we have shown you today and what we wanted to say is that we will be making stringent selection in investment and invest in the areas that would be more profit generating for us. And also, we will be investing more in infrastructure like the processing sector. We will be investing in areas where there will be generation of cash flow EBITDA target is JPY 1.1 trillion. And as for ROE, 8.5% or above, and you may think that it's low, but this will be a passage towards a more stable profitability and growth. In the past midterm plan, as Shikata-san has mentioned, the extraordinary loss control was not done so well. But in this midterm plan, we would like to do that more appropriately and stringently.

So I would like to focus on the cash flow. So your company, as I have been in charge of looking at your company for a long time, and it seems is that your interest in bearing that has significantly increased. And the reason behind that is nongeneration of enough free cash flow. So I hope that free cash flow would become positive and you would be able to improve the balance. So I hope that not only the P&L, but the balance sheet would improve in this midterm plan. You have mentioned about the GMS and in apparel and others. You mentioned that if it's unprofitable, then you're going to discontinue those businesses. Is there any category or business that is on the table now at this point of time?

Well, today, I would like to refrain from naming some. But by category, yes, it is not that we're going to quit whole apparel. There are various segments under apparel, and there is a PL and the management going on. So those segments are profitable or not creating profit, we would first identify whether it could be designed to generate growth or profit or not, and then we would decide what to do with that business. So this is, so to speak, sorting out the businesses. If we just continue ongoing with the existing business, and if you are just sticking to the concept that we need to keep everything on, then I think we cannot revive our business. So that is what I wanted to say.

In that sense from now? You're going to select the categories?

Yes, yes, from now on. Yes.

You talked about utilization of existing assets. And I think that you would be focusing on renovation, renovating drastically your existing stores. So compared to the past 5 years and coming 5 years, you would be focusing more on the renovation rather than newly developing facilities. So for example, ratio of the investment is changed. And I don't know what is the threshold for large investment and renovation the facilities, which are 20 to 30 years old. I think that you would be renovating those. And I was wondering what kind of scale that you're thinking in terms of the investment in renovation, the GMS stand-alone stores and also GMS with specialty stores.

We would like to utilize EO mall network to restructure those facilities for leasing and like the one that we have done in [indiscernible]. So KSA had bought the building. And after [indiscernible], we have gone in. And that building is very different from GMS and the customer base is different. So the existing Sudhanuma store has not seen drop in the customers. So we will be rearranging our stores according to the customer base in those areas. And in the past, everything was considered from the perspective of optimization for each company. So rather than doing that, we would like to utilize the malls know-how and introduced entertainment, amusement so that we can provide more value to the community. As I have said, the our properties asset value is increasing and also the -- and now the newly building a store cost 1.8x more. And the we will not be able to generate profit unless it is a very good location. So investment in existing assets is very effective. So that's the area where we would be focusing on this fiscal year. So that's the message that we have. And we will be investing in these areas.

So in the past, you were investing in building new stores. And that portion probably will be decreased. Would there be a drastic difference in the ratio of new stores and renovation?

Well, it's not that we will be spent -- we would not be spending in new stores, but we will be spending more in the existing store renovation. So in terms of the shopping centers, it's becoming saturated in the market, and also there are -- so there are shopping malls, which are not located in good locations. But now the growth of the new shopping malls is in single digits. We already have the most in good locations. And we want to change the characteristics of the -- those shopping halls.

I have a question to Yoshida. Earlier, you mentioned about consumer mindset. Yes, because of the Middle East conflict people are rather in the saving mind. And short term, you are going to be doing a food retail restructure the consumer mindset and consumer behavior may change. And in the short term, I think you have to respond differently from a long-term response or addresses. So is there any difference there? And what is the short-term and long-term difference?

Basically, short-term measures, not rather, but we have to make a supply chain looking at the medium long-term trend or else you will have not a continuity. Because consumer, we want them to repeatedly come to our stores. So that's what we want to create. So we have 3 layers of top value, best price is rather reasonable, focusing on price mainstream, and we have additional. So 3 layers of top value. We want to establish this. Basically, table, your tables will be filled to stock value. That's we want to have and as many households as possible. We want to have that. For example, 1 month, something would sell well, but we do not want that end. We want to consumers to continue to come to our stores. So best price in this environment, yes, we're selling well. because in the 3 layers, this is price-sensitive customer coming to this. But if things changes and maybe people want to spend more for the environment friendly, then they may come to the green beans. So we have 3 layers and waiting for the customers to come.